Salient to Investors:
Continued stimulus on cooling global growth led by weakening in developing nations amid stagnant inflation and job growth in much of the industrial world risks inflating asset bubbles central bankers will have to face later.
Talk of unsustainable home-price increases is spreading from Germany to New Zealand, while the MSCI World Index of developed-world stock markets is near its highest level since 2007.
Richard Gilhooly at TD Securities said central bankers are wildly pumping liquidity and promising to keep rates down – which is abnormal.
The IMF cut its forecast for global economic growth to 2.9 percent in 2013 and 3.6 percent in 2014, and says inflation across rich countries is short of the 2 percent rate favored by most central banks.
Michala Marcussen at Societe Generale said central banks are concerned we are seeing another false start in their economies, and we need to see 2 to 3 months of better numbers before they are will to contemplate an exit.
The median economist expects the Fed to wait until March before tapering.
Gary D. Cohn at Goldman Sachs said we are economically in the exact same place as a year ago, so if QE made sense a year ago, it probably makes sense today.
Derek Holt at Bank of Nova Scotia said tightening before the Fed is ready to tighten would drive up currencies against the dollar, to the detriment of exports. Holt said the easy-money bias across global central banks will persist until March or April 2014 as the Fed complicated the exit strategies for many central banks.
Joachim Fels at Morgan Stanley said we are at the cusp of another round of global monetary easing, and if the Fed’s delay extends the decline in the dollar, then the BoJ and ECB are also more likely to add fresh stimulus.
Citigroup said the ECB is likely to offer banks another round of cheap, long-term loans in Q1, and the BoJ may ease more to offset a 2014 consumption tax increase.
Thierry Wizman at Macquarie Group said the much weaker dollar will cause central banks to ease because they can be less worried about capital flight if the Fed is not tightening and the strength in their currencies is imparting some disinflation into their economies, giving them a window to cut rates.
David Hensley at JPMorgan Chase forecasts the average interest rate in developed economies to hold close to the current 0.40 percent for another year as it hard to see much changing on the rate front.
The Bundesbank said that apartments in Germany’s largest cities may be overvalued by as much as 20 percent. The BoE is rebutting suggestions of a housing bubble. Rightmove said London asking prices jumped 10.2 percent in October from the prior month.
Michael Ingram at BGC Partners said bubble conditions will remain.
Karen Ward at HSBC sees no rapid withdrawal of global liquidity any time soon as whatever their official mandates, central bankers are supposed to safeguard a nation’s real income.
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